False Rumor Causes Stocks to Plunge
I am often asked if I use stops to try to limit drawdowns. In all of our testing we have found that every once in a while stops can help, but for the most part they don’t. Days like yesterday are another reason that stops can be problematic. When the market briefly plunged it probably triggered a bunch of stops, causing traders to sell positions at a loss only to see the market rally moments later.